Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis
57 Pages Posted: 31 Dec 2008 Last revised: 20 Aug 2011
Date Written: April 15, 2010
We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bankheld loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms). There is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers. A quasi-experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results.
Keywords: Securitization, renegotiation, bargaining, servicing, incentives, subprime, crisis, defaults, mortgages
JEL Classification: G21
Suggested Citation: Suggested Citation